Middle East and Africa emerging as China's top steel exporting region in 2022?

• Southeast Asia gets displaced to second position in Jan-Aug
  
  
• China's steel exports likely to drop y-o-y in current calendar
  
  
• Historic Oct political meet awaited; key policy changes expected
  
  

Morning Brief: China's steel exports to the Middle East and Africa have nudged traditionally leading market, Southeast Asia, to second place in the first eight months of 2022, reveals data maintained with SteelMint.

Middle East and Africa were the leading steel exporting geography for China in January-August 2022 with 11.98 mnt against 11.15 mnt to Southeast Asia.

In 2021, Southeast Asia had been the top export destination with 15.62 mnt against 14.50 mnt to Middle East & Africa.

Over January-August, 2022, China's steel exports were at 46.23 mnt, a y-o-y decline of 4%.

Middle East and Africa
The numbers show that exports to Saudi Arabia, in particular, over January-August, 2022 were at 1.41 mnt whereas volumes for the entire 2021 were at 1.31 mnt. Other countries in this geography have shown a propensity to buy from China. These include Turkey, whose 1.92 mnt over January-August were also higher than the 2021 figure of 1.78 mnt. South Africa too has been buying considerably these first eight months. More recently, m-o-m, its August volumes rose 49% over July's.

Heightened infrastructure development activity in this entire region is warranting this extra procurement from China, SteelMint understands.

Looking at it from China's standpoint, it was actively scouting for newer markets to offload its finished products amid a drop in domestic demand due to its Covid surge and realty sector crash.

Southeast Asia
On the other hand, Southeast Asia, its leading export destination, saw volumes dropping to 11.15 mnt. A key reason for the fall in volumes could be the additional capacities that have come up in this geography, many of which are Chinese-owned. End-users here preferred to procure domestically rather than import. Exports to Vietnam as well as other countries in this group have been slow.

East Asia and Central & South America
These geographies have been more or less stable at 5.73 mnt and 4.78 mnt respectively although, after the withdrawal of Chinese export rebates last year, volumes to Central & South America, especially of coated and galvanized, have dropped. Instead, these markets have been increasingly serviced by other exporting countries, including India.

South Asia
This region too has been stable at 2.46 mnt. Exports to Bangladesh were at a substantial 0.67 mnt considering that total volumes in 2021 were at 0.80 mnt. This country is primarily catered by Japanese and Korean mills which have been operating at lower capacities. Supply disruptions could have possibly turned Bangladesh towards China.

Europe
Volumes to Europe over January-August were at 3 mnt, almost nudging 2021's full year figure of 3.23 mnt. However, China attracts safeguard duties in Europe along with nil quotas. So, under normal circumstances, Europe would not be importing from here, except for semi-finished materials like slabs.

Europe is hemmed in by its own sanctions on Russia. And, with Ukraine's goods struggling with logistics, Europe is looking for alternate sourcing destinations. Italy and Belgium, which are known to generally source slabs and other semis from China, have especially bought in fairly large volumes.

Outlook
China's exports to the Middle East and Africa are increasing and if this pace is sustained for the rest of the year, then this region would replace Southeast Asia as China's top exporting destination in 2022.

SteelMint expects China's exports to drop in 2022 to 60-62 mnt against 66 mnt in 2021, based on two points. One, the Chinese government is discouraging exports of commercial grade steel and focusing on high grade/high value materials instead. Secondly, the country's aggressive decarbonisation drive will ensure that its steel production will be lower than 2021's level of 1.03 billion tonnes, with a pronounced focus on domestic consumption.

Meanwhile, China is set to convene a historic national party meet in October where policy announcements may be made, whose fallout may be felt on the iron and steel industry too.